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NORTH CAROLINA LAW REVIEW

Volume 76 | Number 1 Article 8

11-1-1997

Searching for Limits on a Municipality's Retentionof Governmental Immunity: Lyles v. City ofCharlotteJ. Jason Link

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Recommended CitationJ. J. Link, Searching for Limits on a Municipality's Retention of Governmental Immunity: Lyles v. City of Charlotte, 76 N.C. L. Rev. 269(1997).Available at: http://scholarship.law.unc.edu/nclr/vol76/iss1/8

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Searching for Limits on a Municipality's Retention ofGovernmental Immunity: Lyles v. City of Charlotte

On August 5, 1990, a Charlotte police officer, Milus Terry Lyles,was transporting a prisoner in his police car.' Even though OfficerLyles had handcuffed the prisoner and searched him for weapons,2the prisoner managed to get control of a pistol hidden on his personand shoot Officer Lyles twice in the back.' Officer Lyles was wearinga bullet-proof vest, so the shots did not enter his back; however, hedid lose control of the car.4 After the car crashed into a parked dumptruck, Officer Lyles left the car to call for assistance on his portableradio as he had been trained to do.' When the portable radio did notwork, he approached the car to use the radio located inside of it.7

The prisoner, still in possession of the gun, shot Officer Lyles todeath."

In Lyles v. City of Charlotte,9 Officer Lyles's wife brought awrongful death action against the City of Charlotte (the "City") forher husband's death." The City raised governmental immunity as anaffirmative defense.1' However, the City participated in a risk-

1. See Lyles v. City of Charlotte, 344 N.C. 676, 677-78, 477 S.E.2d 150, 151 (1996).Officer Lyles and his partner had responded to a call involving a domestic dispute andarrested the prisoner at the scene of the dispute. See Lyles v. City of Charlotte, 120 N.C.App. 96, 97, 461 S.E.2d 347, 348 (1995), rev'd, 344 N.C. 676, 477 S.E.2d 150 (1996).Officer Lyles's partner drove away in a separate vehicle. See id.

2. See Lyles, 120 N.C. App. at 97,461 S.E.2d at 348.3. See Lyles, 344 N.C. at 678,477 S.E.2d at 151.4. See ki at 678,477 S.E.2d at 151-52.5. See Lyles, 120 N.C. App. at 97,461 S.E.2d at 348.6. See Lyles, 344 N.C. at 678, 477 S.E.2d at 152. Officer Lyles crouched down

behind the vehicle, pressed the emergency button on the radio, and requested assistance.See Lyles, 120 N.C. App. at 97, 461 S.E.2d at 348. Officer Lyles thought that he wouldreceive a clear channel of communication with other officers by using the emergencybutton. See aL However, Officer Lyles's call for assistance was not sent to other officersand he did not receive a response. See id

7. See Lyles, 344 N.C. at 678, 477 S.E.2d at 152. The attempt by Officer Lyles toreturn to the front of his car in order to use his squad car radio was "[iun conformity withhis training." Lyles, 120 N.C. App. at 97,461 S.E.2d at 348.

8. See Lyles, 344 N.C. at 678, 477 S.E.2d at 152. The prisoner shot Officer Lyles asLyles passed the left rear window of the police car. See Lyles, 120 N.C. App. at 97, 461S.E.2d at 348-49.

9. 344 N.C. 676,477 S.E.2d 150 (1996).10. See id. at 677,477 S.E.2d at 151.11. See Lyles, 120 N.C. App. at 98, 461 S.E.2d at 349. With this defense of


management program and also had a liability insurance policy,"which was significant because a North Carolina statute provides thata city that participates in a local government risk pool or that hasliability insurance to cover an incident has waived its governmentalimmunity.' The North Carolina Court of Appeals held that the Cityhad waived its governmental immunity because its risk-managementprogram fell within the statutory definition of a local government riskpool. 4 The North Carolina Supreme Court reversed the court ofappeals and held that the City had not waived its governmentalimmunity." According to the supreme court, the City's participationin the risk-management program did not constitute joining a localgovernment risk pool and the City's liability insurance did not coverthe allegations by Lyles.'"

While federal and state governments historically have receivedabsolute immunity from liability, the scope of the doctrine ofmunicipal immunity gradually has been limited by statute and byjudicial decision." For instance, "virtually every state that hasretained sovereign immunity has limited municipal tort immunity tothe extent that municipal actions can be categorized as proprietaryfunctions." 8 Several states, including North Carolina, 9 have statutes

governmental, or sovereign, immunity, the City moved for judgment on the pleadings, or,in the alternative, summary judgment. See Lyles, 344 N.C. at 677, 477 S.E.2d at 151.Sovereign immunity is "[a] judicial doctrine which precludes bringing suit against thegovernment without its consent." BLACK'S LAw DIcIONARY 1396 (6th ed. 1990).

12. See Lyles, 344 N.C. at 678,477 S.E.2d at 152.13. See N.C. GEN. STAT. § 160A-485 (1994); see also infra note 119 and

accompanying text (quoting this statute). Several states provide for the waiver ofgovernmental immunity in the presence of liability insurance. See, e.g., IOWA CODE ANN.§ 670.7 (West Supp. 1997); MINN. STAT. ANN. § 466.06 (West 1994); Miss. CODE ANN.§ 11-46-16 (Supp. 1996); Mo. ANN. STAT. § 537.610 (West Supp. 1997); S.D. CODIFIEDLAWS § 21-32A-1 (Michie 1987); VT. STAT. ANN. tit. 29, § 1403 (Supp. 1996).

14. See Lyles, 120 N.C. App. at 99,461 S.E.2d at 349.15. See Lyles, 344 N.C. at 681-82, 477 S.E.2d at 153-54. The supreme court

subsequently denied a petition for rehearing filed by Officer Lyles's widow. See Lyles v.City of Charlotte, 345 N.C. 355,483 S.E.2d 170 (1997).

16. See Lyles, 344 N.C. at 681-82, 477 S.E.2d at 153-54. Throughout this Note,"Lyles" will refer to Debra Kay Lyles, the wife of Officer Milus Terry Lyles.

17. See Deborah L. Markowitz, Municipal Liability for Negligent Inspection andFailure to Enforce Safety Codes, 15 HAMLINE J. PUB. L. & POL'Y 181, 185 (1994). Only aminority of states have retained "the traditional doctrine of complete immunity." Id.

1& Id. at 185-86. The North Carolina Supreme Court has stated that municipalcorporations act in a proprietary function when they "are acting ... in their ministerial orcorporate character in the management of property for their own benefit, or in theexercise of powers, assumed voluntarily for their own advantage." Moffitt v. City ofAsheville, 103 N.C. 191, 203, 9 S.E. 695, 697 (1889); see also EUGENE MCQUILLIN,MUNICIPAL CORPORATIONS § 53.29, at 338 (3d ed. rev. 1993) ("To be proprietary innature, an activity must be conducted primarily for the purpose of producing a pecuniary

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GOVERNMENTAL IMMUNITY

providing for the waiver of governmental immunity by localgovernments to the extent that the local government has liabilityinsurance to cover the claim." Additionally, in North Carolina, acity's participation in a statutory local government risk pool isdeemed the equivalent of purchasing insurance.21 While other statesauthorize participation in local government risk pools, suchparticipation is not always considered a waiver of governmentalimmunity.' Thus, one commentator has noted that "[w]ith its explicitassertion that risk pools are to be treated as insurance, NorthCarolina has moved to the forefront in risk-managementinterpretation."23 North Carolina's position on the waiver ofgovernmental immunity was the focus of the North CarolinaSupreme Court's decision in Lyles.

This Note first discusses the facts of Lyles, the decisions of thelower courts, and the opinion of the North Carolina Supreme Court.24

Next, the Note examines the history of governmental immunity andhow it may be waived in North Carolina.' The Note then analyzesthe influence of this history on Lyles and how the decision conformsto and differs from past cases.' Finally, the Note considers reasons acity might waive governmental immunity as well as argumentssupporting and disfavoring the abolition of the doctrine completely.'

profit and must not normally be supported by taxes or fees."). "Examples of proprietaryfunctions [according to North Carolina courts] include the operation of a waterworkssystem for sale of water for private consumption, the operation of an airport, and theoperation of an arena for the holding of exhibitions and athletic events." Patti OwenHarper, Statutory Waiver of Municipal Immunity upon Purchase of Liability Insurance inNorth Carolina and the Municipal Liability Crisis, 4 CAMPBELL L. REv. 41, 49 (1981)(footnotes omitted); see also infra notes 103-09 and accompanying text (discussing theadoption of the governmental/proprietary distinction in North Carolina).

19. See N.C. GEN. STAT. § 160A-485 (1994); see also infra note 119 (quoting thisstatute).

20. See supra note 13 (listing state statutes that provide for the waiver ofgovernmental immunity in the presence of liability insurance).

21. See N.C. GEN. STAT. § 160A-485(a).22. See, e.g., Morgan v. City of Ruleville, 627 So.2d 275, 281 (Miss. 1993) (holding

that a city's participation in the Mississippi Municipal Liability Plan constituted self-insurance, but did not waive its sovereign immunity); City of Laramie v. Facer, 814 P.2d268, 271 (Wyo. 1991) (holding that participation in a statewide risk-management programwas not the equivalent of purchasing insurance and was not a waiver of governmentalimmunity).

23. Tamura D. Coffey, Comment, Waiving Local Government Immunity in NorthCarolina: Risk Management Programs Are Insurance, 27 WAKE FOREST L. REV. 709,731(1992).

24. See infra notes 28-98 and accompanying text.25. See infra notes 99-201 and accompanying text.26. See infra notes 202-77 and accompanying text.27. See infra notes 278-313 and accompanying text.

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At the time of the incident involving Officer Lyles, the City ofCharlotte had an insurance policy with General ReinsuranceCorporation.2 The policy covered employees' claims arising out of"'bodily injury by accident or bodily injury by disease,'" but did notprovide coverage for "'bodily injury intentionally caused oraggravated by or at the direction of the Insured.' ,29 Additionally, theCity of Charlotte participated in a risk-management program withthe Charlotte-Mecklenburg Board of Education and MecklenburgCounty?0 The three entities entered into an agreement that created aDivision of Insurance and Risk Management ("DIRM") "to handleliability claims asserted against" them.31 The DIRM maintained aseparate trust account for each entity and each entity was required todeposit funds into its account to pay claims against it.32 The first$500,000 of any claim against an entity was to come from the entity'sown account.33 If a judgment was entered for more than $500,000 andthe entity did not have sufficient funds to pay it, then "the entity[could] use funds that one of the other entities ha[d] in the DIRM inexcess of $500 ,0 00 ,"' but had to repay with interest any funds that itborrowed from the other entities' accounts. 5

Debra Kay Lyles, the wife of the murdered officer and theadministrator of his estate, brought an action for the wrongful deathof her husband against both the City of Charlotte and themanufacturer of the portable radio." Lyles alleged that the City andthe manufacturer "intentionally instructed her [husband] to use theportable radio in a certain way, knowing that if used that way, theradio would not function and that there was a substantial certaintythat this improper use would result in the death or serious injury ofan officer." 37 The City raised sovereign or governmental immunity as

28. See Lyles, 344 N.C. at 678, 477 S.E.2d at 152. The policy covered claims for morethan $250,000, but not exceeding $1,250,000. See id.

29. ld. (quoting the insurance policy).30. See id.31. Id.32. See id-33. See id.34. Id The DIRM would not pay claims in excess of $1,000,000. See id.35. See i.36. See i. at 677-78, 477 S.E.2d at 151. Although the supreme court did not review

the claim against the manufacturer of the radio, the appellate court acknowledged Lyles'sclaims against it. See Lyles v. City of Charlotte, 120 N.C. App. 96, 97-98, 461 S.E.2d 347,359 (1995), rev'd, 344 N.C. 676,477 S.E.2d 150 (1996).

37. Lyles, 344 N.C. at 678,477 S.E.2d at 152.

272 [Vol. 76


an affirmative defense, asserting that it was not subject to suit.'Based on this defense, the City moved for a judgment on thepleadings, or alternatively, for summary judgment.39 The superiorcourt denied both motions.4 On appeal, the North Carolina Court ofAppeals affirmed the judgment of the superior court,4' holding thatthe City was participating in a local government risk pool and therebyhad waived governmental immunity.42

The North Carolina Supreme Court, in a four-to-three decision,reversed the court of appeals and granted the City's motion forsummary judgment.43 Justice Webb, writing for the court, began bynoting the two ways in which a city may waive its sovereign immunityfor civil liability in tort.' Under § 160A-485 of the North CarolinaGeneral Statutes,45 a city waives governmental immunity byparticipating in a statutory local government risk pool" or bypurchasing liability insurancef Although Lyles asserted that the Cityhad participated in a local government risk pool under the terms ofthe statute," the court disagreed and held that the City's participation

38. Sed Lyles, 120 N.C. App. at 98,461 S.E.2d at 349.39. See Lyles, 344 N.C. at 677,477 S.E.2d at 151.40. See id. at 678, 477 S.E.2d at 152.41. See id. For the opinion of the court of appeals, see Lyles v. City of Charlotte, 120

N.C. App. 96,461 S.E.2d 347 (1995), rev'd, 344 N.C. 676,477 S.E.2d 150 (1996).42. See Lyles, 120 N.C. App. at 106, 461 S.E.2d at 353-54. The court of appeals

reasoned that the ability of an entity to use funds that one of the other entities had in theDIRM, despite the obligation to repay, provided a "mechanism by which participants[could] 'pool retention of their risks for property losses and liability claims and ...provide for the payment of such losses of or claims made against any member of the poolon a cooperative or contract basis with one another.'" Id at 106, 461 S.E.2d at 353(quoting N.C. GEN. STAT. § 58-23-5 (1994)).

43. See Lyles, 344 N.C. at 682,477 S.E.2d at 154.44. See id. at 679, 477 S.E.2d at 152.45. N.C. GEN. STAT. § 160A-485 (1994).46. See N.C. GEN. STAT. § 58-23. These pools are established pursuant to Article 23,

Chapter 58 of the North Carolina General Statutes. See id. The court quoted §§ 58-23-5and 58-23-15(3), which govern the establishment of local government risk pools. SeeLyles, 344 N.C. at 679, 477 S.E.2d at 152; see also infra notes 173-74 and accompanyingtext (quoting the same statutory sections).

47. See N.C. GEN. STAT. § 160A-485; Lyles, 344 N.C. at 679,477 S.E.2d at 152.48. See Lyles, 344 N.C. at 679-80,477 S.E.2d at 152-53. Lyles argued thatbecause the City has the right, in certain circumstances, to use funds contributedby the other entities for the payment of claims, the entities had pooled retentionof their risks for liability and provided for the payment of such claims madeagainst any member of the pool on a cooperative or contract basis.

Id at 679, 477 S.E.2d at 152-53. Even though the City had to repay funds it borrowedfrom another entity, Lyles contended that the agreement was in essence a localgovernment risk pool that met the statutory requirements. See id at 679-80, 477 S.E.2d at152-53. This argument was the basis of the holding of the court of appeals. See Lyles v.

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in the DIRM did not constitute joining a local government risk pool. 9

To support this holding, the court first noted that the Charlotte-Mecklenburg Board of Education did not meet the statutorydefinition of "local government" and therefore could not, under theterms of the statute, join a local government risk pool." The courtdid not determine the effect on the agreement of the Board ofEducation's inability to join a statutory local government risk pool. 1

Irrespective of whether the Board of Education's participation hadany effect, the court still concluded that the agreement did notconstitute a risk pool." The court had little precedent to guide it, asonly one case, Blackwelder v. City of Winston-Salem, 3 had"interpret[ed] the statute as to what constitutes a local governmentrisk pool."

Regardless of the Board of Education issue, the courtdetermined that the City's agreement did not entail sufficient risk-sharing to create a local government risk pool.5 Noting that§ 58-23-15 of the North Carolina General Statutes requires that therisk pool pay all claims for which an entity is liable,56 the court statedthat "the pool has [not] paid a claim if it is reimbursed for it."'Additionally, § 58-23-5 of the North Carolina General Statutes statesthat risk pools may be formed by local governments "to poolretention of their risks for ... liability claims.""8 The courtinterpreted this language to require the local governments toconsolidate their funds into one pool for the payment of claims,

City of Charlotte, 120 N.C. App. 96,105-06,461 S.E.2d 347,353-54 (1995), rev'd, 344 N.C.676, 477 S.E.2d 150 (1996). Lyles also argued that the City waived its immunity bypurchasing liability insurance. See infra notes 64-73 (discussing the issue of liabilityinsurance).

49. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.50. See id at 680, 477 S.E.2d at 153. Under Article 23 of Chapter 58 of the North

Carolina General Statutes, "'local government' means any county, city, or housingauthority located in [North Carolina]." N.C. GEN. STAT. § 58-23-1.

51. See Lyles, 344 N.C. at 680, 477 S.E.2d at 153. The court expressly declined todetermine the effect that a non-eligible entity, specifically the Board, would have on theotherwise eligible local government risk pool. See id. Instead, the court determined thatthe agreement did not constitute a statutory local government risk pool. See id.

52. See iL53. 332 N.C. 319,420 S.E.2d 432 (1992).54. Lyles, 344 N.C. at 680, 477 S.E.2d at 153. Blackwelder held that a local

government risk pool requires at least two local governments. See Blackwelder, 332 N.C.at 322, 420 S.E.2d at 434. For a discussion of Blackwelder, see infra notes 177-88 andaccompanying text.

55. See Lyles, 344 N.C. at 680,477 S.E.2d at 153.56. See N.C. GEN. STAT. § 58-23-15 (1994).57. Lyles, 344 N.C. at 680,477 S.E.2d at 153.58. N.C. GEN. STAT. § 58-23-5.

[Vol. 76


which was not done in the City's agreement.59 Finally, the courtfound no evidence that the entities involved in the present agreementhad met the statutory requirements 6' for organizing a localgovernment risk pool.1 The court noted that this failure to complywith statutory requirements, although not determinative, "should begiven some weight."6' 2 Based on this statutory interpretation, thecourt held that the City did not join a local government risk pool andthus had not waived its governmental immunity in that regard.'

Lyles also argued that her husband's death was accidental andthat the City had waived its immunity to the extent that it hadliability insurance to cover the claim.' The court noted that thepolicy covered "claims for bodily injury of City employees byaccident and exclude[d] coverage for 'bodily injury intentionallycaused or aggravated by or at the direction of the Insured.' 1365

However, Lyles brought the action pursuant to the exception to theexclusivity provision of the Workers' Compensation Act created inWoodson v. Rowland,' "alleging that the [City] knew or should have

59. See Lyles, 344 N.C. at 680,477 S.E.2d at 153.60. See N.C. GEN. STAT. § 58-23; see also infra notes 173-74 (quoting certain

provisions of Article 23 of Chapter 58 that mention some of these statutoryrequirements). For example, parties seeking to join a local government risk pool mustgive the Commissioner of Insurance of North Carolina 30 days written notice of theirintent to organize and operate a local government risk pool. See N.C. GEN. STAT. § 58-23-5. The parties also must meet requirements regarding the creation of a board oftrustees and for the operation of the pools. See id. § 58-23-10. In addition, there arerequirements pertaining to provisions that must be included in the risk pool agreement,see id. § 58-23-15, and to the financial monitoring and evaluation of the risk pools, see id.§ 58-23-26.

61. See Lyles, 344 N.C. at 680,477 S.E.2d at 153.62. Id. at 680-81, 477 S.E.2d at 153. If the City did not meet the statutory

requirements for joining a local government risk pool, "its payment of government fundsto settle tort claims to which governmental immunity applies would appear to be ultravires." Id. at 686, 477 S.E.2d at 156 (Frye, J., dissenting). Ultra vires describes "[a]n actperformed without any authority to act on [the] subject." BLACK'S LAW DICTIONARY1522 (6th ed. 1990). The majority declined to address the issue of whether it was ultravires for the City to create the DIRM, because that issue was not raised by the parties.See Lyles, 344 N.C. at 681, 477 S.E.2d at 153. The court then refuted the dissent'sargument that the DIRM was a local government risk pool because it would be ultra viresotherwise. See id at 681, 477 S.E.2d at 153; see also infra notes 79-85 and accompanyingtext (discussing the dissent's presumption that the City complied with the statutoryrequirements so the that risk pool would not be ultra vires).

63. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.64. See id. The City's policy covered claims in excess of $250,000, but not more than

$1,250,000. See id.65. Id. (quoting the insurance policy).66. 329 N.C. 330, 407 S.E.2d 222 (1991). In Woodson, the North Carolina Supreme

Court held that an employee may pursue a civil action against an employer "when [the]

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known that its action in instructing its officers how to use the radioswas substantially certain to cause the death or serious injury of anofficer."67 In response to this allegation, the City argued that Lyleshad asserted a claim that was not covered by the insurance policybecause the policy covered only accidental injuries and expresslyexcluded intentional injuries of the type alleged by Lyles."

The North Carolina Supreme Court agreed with the City,holding that "when [Lyles] alleged the City's action was substantiallycertain to cause an injury, she alleged the occurrence was notaccidental"69 and therefore removed the claim from insurancecoverage.70 The court distinguished its previous decision in Woodson,in which it held that facts asserted in a civil action that demonstratesubstantial certainty of injury may nevertheless also allow a workers'compensation claim on an accident theory.7' The court explained thatbecause Lyles did not bring a workers' compensation claim, she couldnot rely on the provisions of the Workers' Compensation Act todetermine whether her claim was based on an accident.' Because thecourt determined that the City was not participating in a localgovernmental risk pool and did not have liability insurance to coverLyles's claim, it held that the City had not waived its governmentalimmunity and therefore that summary judgment for the City wasappropriate.73

In a dissenting opinion, Justice Frye disagreed with the majorityon both the local government risk pool and the liability insuranceissues.74 Although Justice Frye acknowledged that the City'sagreement with Mecklenburg County and the Charlotte-Mecklenburg Board of Education may not have met the statutoryrequirements for a local government risk pool, he argued that the

employer intentionally engages in misconduct knowing it is substantially certain to causeserious injury or death to employees and [the] employee is injured or killed by thatmisconduct." Id at 340-41, 407 S.E.2d at 228; see infra notes 149-61 and accompanyingtext (analyzing Woodson). If Lyles had a Woodson claim, then worker's compensationwould not be her exclusive remedy. See Lyles, 344 N.C. at 681,477 S.E.2d at 154.

67. Lyles, 344 N.C. at 681, 477 S.E.2d at 154. The court did not decide whether Lyleshad a Woodson claim because the issue was not raised on appeal. See Id. However, forthe purpose of analysis, the court assumed that Lyles had a valid Woodson claim. See id.

68. See id.69. Id. at 682, 477 S.E.2d at 154 (citing North Carolina Farm Bureau Mut. Ins. Co. v.

Stox, 330 N.C. 697,709,412 S.E.2d 318,325 (1992)).70. See id.71. See id.72. See id.73. See id.74. See id. (Frye, J., dissenting). Chief Justice Mitchell and Justice Lake joined

Justice Frye's dissenting opinion. See id at 689,477 S.E.2d at 158 (Frye, J., dissenting).

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agreement in this case was essentially a risk pool and that the Cityhad consequently waived its governmental immunity.75 The dissentsupported its position with policy considerations:

Under such a scheme, the decision of the local governmentofficials is not reviewable, and the awards to injured partiesmay be distributed on an arbitrary basis without anyopportunity for the injured party to have the decision of thelocal government reviewed by the courts. Even the State ofNorth Carolina does not have such unbridled discretion.76

After reviewing the relevant statutes and the court's prior decision inBlackwelder v. City of Winston-Salem.7 the dissent then criticized theLyles majority and the Blackwelder court for implicitly assuming thata city could enter a government risk-management program notauthorized by statute.78

The dissent suggested that risk-management programs otherthan those allowed by statute may be ultra vires'79 "[A] municipalitymust have a legal obligation to make a payment in order to distributegovernmental funds." "[T]o the extent a municipality retains itssovereign immunity, it has no authority to pay [a] claim against it."8

The dissent noted that municipalities can exercise only the powergiven to them by the legislature,2 and questioned the City's authorityto "negotiate, settle, and pay tort claims against it under the risk-management program.""n According to the dissent, the City hadeither waived its governmental immunity by participating in the risk-management program, "or its payment of governmental funds tosettle tort claims ... would appear to be ultra vires."' " The dissentpresumed that the City, to avoid actions that might be ultra vires, hadcomplied with the statutes in establishing the risk-managementprogram and concluded that the City's participation in the program

75. See id- at 684,477 S.E.2d at 155 (Frye, J., dissenting).76. Id. (Frye, J., dissenting).77. 332 N.C. 319, 420 S.E.2d 432 (1992); see supra note 54 (discussing Blackwelder's

holding); infra notes 177-88 and accompanying text (analyzing Blackwelder in moredetail).

78. See Lyles, 344 N.C. at 685,477 S.E.2d at 156 (Frye, J., dissenting).79. See id. (Frye, J., dissenting); supra note 62 (defining ultra vires).80. Lyles, 344 N.C. at 685, 477 S.E.2d at 156 (Frye, J., dissenting) (citing Leete v.

County of Warren, 341 N.C. 116,120-21,462 S.E.2d 476,479 (1995)).81. Id. at 686,477 S.E.2d at 156 (Frye, J., dissenting).82. See id. (Frye, J., dissenting) (citing Bowers v. City of High Point, 339 N.C. 413,

417,451 S.E.2d 284,287 (1994)).83. Id. (Frye, J., dissenting).84. Id. (Frye, J., dissenting).

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waived its governmental immunity.YJustice Frye next addressed the issue of whether the City's

liability insurance covered Lyles's claim, such that governmentalimmunity had been waived. 6 The dissent disagreed with themajority, which had relied on North Carolina Farm Bureau MutualInsurance Co. v. Stoic' to hold that Lyles's claim was excluded frominsurance coverage because she alleged that "the City's action wassubstantially certain to cause injury."' First, the dissent distinguishedStox because that case did not involve a Woodson claim. 9 Also,contrary to the majority's opinion, the dissent stated that Stoxsuggested that the City's liability insurance would cover the claim inLyles because the insurance policy in Stox contained an exclusionsimilar to the one at issue in Lyles and the Stox court found theexclusion to be inapplicable when the injury was an unexpected resultof an intentional act." Quoting Stox, the dissent pointed out that" 'itis the resulting injury, not merely the volitional act, which must beintended for [the] exclusion to apply.' .... Thus, the exclusionprovision in the City's insurance policy should not have applied toLyles's claim.9

Second, the dissent noted that Woodson does not require actualintent to harm "'for an employer's conduct to be actionable in tortand not protected by the exclusivity provisions of worker'scompensation.' " In order to be liable, an employer in a Woodsonaction only has to engage intentionally in conduct that is substantially

85. See id (Frye, J., dissenting).86. See id. (Frye, J., dissenting).87. 330 N.C. 697, 412 S.E.2d 318 (1992); see also infra notes 135-48 and

accompanying text (discussing Stox).8& Lyles, 344 N.C. at 686,477 S.E.2d at 157 (Frye, J., dissenting).89. See id. (Frye, J., dissenting). Stox involved a claim under a homeowner's

insurance policy by a co-employee of the insured for injuries caused by the insured attheir place of employment. See Stox, 330 N.C. at 699, 412 S.E.2d at 320. The Lylesdissent also noted that the court has never addressed whether a Woodson claim is coveredby liability insurance. See Lyles, 344 N.C. at 686-87, 477 S.E.2d at 157 (Frye, J.,dissenting).

90. See Lyles, 344 N.C. at 687,477 S.E.2d at 157 (Frye, J., dissenting). The insurancepolicy in Stox excluded claims for " '" bodily injury.., which is expected or intended bythe insured .... Id. (Frye, J., dissenting) (omission in original) (quoting Stox, 330 N.C. at703, 412 S.E.2d at 322 (quoting the insurance policy)).

91. Id. (Frye, 3., dissenting) (quoting Stox, 330 N.C. at 703-04,412 S.E.2d at 322).92. See id. at 688,477 S.E.2d at 157 (Frye, J., dissenting). The court noted there were

no allegations that Lyles "believes or contends that the police department did anythingwith the intent to injure or to kill Mr. Lyles or anyone else." Id. (Frye, J., dissenting).

93. Id. (Frye, J., dissenting) (quoting Woodson v. Rowland, 329 N.C. 330, 344, 407S.E.2d 222,230 (1991)).

278 [Vol. 76


certain to result in serious injury or death.' This level of conduct is"' "so egregious as to be tantamount to an intentional tort."' ,,.8 Thedissent criticized the court for drawing an untenable line betweenintentional torts and egregious conduct that is tantamount to anintentional tort" and determined that conduct on the substantial-certainty side of this line should not be excluded under the City'sinsurance policy.' The dissent asserted that the City had waived itsgovernmental immunity by participating in a local government riskpool and by purchasing insurance that covered Lyles's claim, andtherefore the City's motion for summary judgment should have beendenied.98

Sovereign (or governmental) immunity is "[a] judicial doctrinewhich precludes bringing suit against the government without itsconsent."" The doctrine possibly originated in Roman law and hassignificant roots in England."" Although the United States SupremeCourt adopted the doctrine of sovereign immunity for the federalgovernment in the early nineteenth century,'' subsequent NorthCarolina Supreme Court decisions refused to adopt the doctrine formunicipalities.'0

In 1889, however, the North Carolina Supreme Court appliedthe doctrine to claims against municipalities, at least in part, inMoffitt v. City of Asheville."3 In Moffitt, a prisoner brought an actionagainst the City bf Asheville seeking damages for physical illness

94. See id. at 688,477 S.E.2d at 158 (Frye, J., dissenting) (citing Owens v. W.K. DealPrinting, Inc., 339 N.C. 603, 604,453 S.E.2d 160,161 (1995)).

95. Id (Frye, J., dissenting) (quoting Owens, 339 N.C. at 604, 453 S.E.2d at 161(quoting Pendergrass v. Card Care, Inc., 333 N.C. 233,239,424 S.E.2d 391,395 (1993))).

96. See id (Frye, J., dissenting).97. See id. at 689,477 S.E.2d at 158 (Frye, J., dissenting).98. See id. at 686,477 S.E.2d at 156 (Frye, J., dissenting).99. BLACK'S LAW DICIONARY 1396 (6th ed. 1990).

100. See Harper, supra note 18, at 44-45. For a detailed discussion of the doctrine'shistorical development, see id passim, and Beecher Reynolds Gray, Comment, LocalGovernment Sovereign Immunity: The Need for Reform, 18 WAKE FOREST L. REv. 43,44(1982).

101. See Cohens v. Virginia, 19 U.S. (1 Wheat.) 264,303 (1821).102 See Wright v. City of Wilmington, 92 N.C. 156 (1885); Meares v. Commissioners

of Wilmington, 31 N.C. (9 Ired.) 61, 73 (1848) (per curiam). An English court firstapplied the doctrine to claims against a municipality in 1788. See Gray, supra note 100, at44 (citing Russell v. Men of Devon, 100 Eng. Rep. 359 (K.B. 1788)). However, thisdecision occurred after North Carolina already had adopted English common law as itexisted prior to the Declaration of Independence in 1776. See Harper, supra note 18, at46. Section 4-1 of the North Carolina General Statutes authorized adoption of Englishcommon law. See N.C. GEN. STAT. § 4-1 (1986).

103. 103 N.C. 191,9 S.E. 695 (1889).

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caused by his confinement in the city's prison without adequate heatand blankets on a cold night.'" The court had to decide whether theCity of Asheville could be found liable for the prisoner's injuries, orwhether governmental immunity for municipalities should beadopted.'O' The court began its analysis by noting the two capacitiesin which a city may act-it may act for its own benefit as a privatecorporation or it may exercise governmental duties as conferred byits charter. ' The court used this distinction to expound two rulesgoverning the application of governmental immunity to a givensituation. The first rule stated that when a municipal corporation actsin a "ministerial or corporate character in the management ofproperty for [its] own benefit, or in the exercise of powers, assumedvoluntarily for [its] own advantage," the municipal corporation is"impliedly liable for damage caused by the negligence of officers oragents, subject to their control" even if the municipality receives ageneral benefit from the activity.' The second rule adopted by thecourt stated that if a city or town is "exercising the judicial,discretionary or legislative authority, conferred by its charter, or isdischarging a duty, imposed solely for the benefit of the public," thenthe city or town will not be found liable "for the negligence of itsofficers, though acting under color of office" unless a statuteexplicitly, or by necessary implication, provides that the city or townmay be held liable for damages resulting from shch negligence. "'Thus, in Moffitt, the state supreme court extended sovereignimmunity to municipalities acting in a governmental capacity anddenied it to municipalities acting for proprietary purposes

The municipal immunity rules from Moffitt remainedunchallenged until 1950,"10 when the doctrine withstood a significantattack in Stephenson v. City of Raleigh."' Stephenson sued the City

104. See id. at 192, 9 S.E. at 696.105. See id at 203, 9 S.E. at 697.106. See a107. Id.108. Id.109. See id. at 203-04, 9 S.E. at 697. The court found that a city's construction and

supervision of prisons is a governmental function and that, as a general rule, counties andtowns cannot be found liable for injuries to prisoners "caused by the neglect of theirrespective jailers, policemen or guards who may have immediate charge and custody ofthem, and of which the governing officials of the corporation had no notice." Id. at 206, 9S.E. at 699. For examples of proprietary functions, see infra note 279.

110. See Harper, supra note 18, at 48-49 ("From Moffitt to the present time, NorthCarolina courts have continued to extend sovereign immunity to governmental functionsand to deny it to proprietary functions.").

111. 232 N.C. 42,59 S.E.2d 195 (1950).

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19971 GOVERNMENTAL IMMUNITY

of Raleigh for the death of her husband as a result of injuries hesustained in a collision with a city truck that was collecting trimmingsfrom trees and bushes along city streets.1 2 The Stephenson courtconcluded that this service was a governmental function andtherefore governmental immunity applied."' Because the City ofRaleigh had liability insurance that indemnified it for liability due toaccidents involving its vehicles,"4 Stephenson argued that immunityhad been waived." The court rejected this argument and held that,absent express statutory authority, a municipality's purchase ofliability insurance does not constitute a waiver of its governmentalimmunity.1

6

In 1951, one year after the decision in Stephenson, the NorthCarolina General Assembly enacted a statute which provided that acity waives its sovereign immunity for liability resulting from thenegligent operation of motor vehicles when it obtains liabilityinsurance."7 This statute has evolved over the years" s and currently isembodied in § 160A-485 of the North Carolina General Statutes."'

112. See id. at 43, 59 S.E.2d at 196.113. See id. at 46,59 S.E.2d at 198-99.114. See id. at 44-45, 59 S.E.2d at 197.115. See id. at 45,59 S.E.2d at 198.116. See id. at 47, 59 S.E.2d at 199.117. See Act of Apr. 14, 1951, ch. 1015, 1951 N.C. Sess. Laws 1007 (codified as

amended at N.C. GEN. STAT. § 160A-485 (1994)); see also Harper, supra note 18, at 54-55(discussing important features of the statute).

118. See Harper, supra note 18, at 54-56 (discussing the evolution of N.C. GEN. STAT.§ 160A-485 through 1981).

119. See N.C. GEN. STAT. § 160A-485. The relevant portions state:(a) Any city is authorized to waive its immunity from civil liability in tort by theact of purchasing liability insurance. Participation in a local government riskpool pursuant to Article 23 of General Statutes Chapter 58 shall be deemed tobe the purchase of insurance for the purposes of this section. Immunity shall bewaived only to the extent that the city is indemnified by the insurance contractfrom tort liability. No formal action other than the purchase of liabilityinsurance shall be required to waive tort immunity, and no city shall be deemedto have waived its tort immunity by any action other than the purchase ofliability insurance.

ic) Any plaintiff may maintain a tort claim against a city insured under thissection in any court of competent jurisdiction. As to any such claim, to theextent that the city is insured against such claim pursuant to this section,governmental immunity shall be no defense.... No judgment may be enteredagainst a city in excess of its insurance policy limits on any tort claim for which itwould have been immune but for the purchase of liability insurance pursuant tothis section.

Id. In addition to providing for the waiver of immunities by cities, North Carolina has asimilar statute providing for the waiver of immunity by counties. See N.C. GEN. STAT.


This section authorizes a city to waive its immunity from civil liabilityby purchasing insurance. '2' Under the statute, a city's participation ina local government risk pool pursuant to Article 23 of Chapter 58 ofthe North Carolina General Statutes is equivalent to the purchase ofinsurance under § 160A-485." ' However, a city's immunity is waivedonly to the extent that the city "is indemnified by the insurancecontract from tort liability."" In addition, the purchase of liabilityinsurance alone is sufficient to waive immunity, but a city may notwaive its immunity by any action other than purchasing insurance."The statute also states explicitly that governmental immunity is not adefense "to the extent that the city is insured against [tort] claims."'2'4

However, "[n]o judgment may be entered against a city in excess ofits insurance policy limits on any tort claim for which it would havebeen immune but for the purchase of liability insurance pursuant tothis section." '

Because the statute clearly indicates that a city's immunity iswaived to the extent that the city is indemnified by its insurancecontract,1" the key issue is whether the insurance contract covers thealleged incident, which sometimes requires the court to interpretprovisions in the contract. The following cases illustrateinterpretations of insurance policies by the North Carolina courts andhow these interpretations are relevant to a court's determination inmunicipal immunity cases of whether a city's policy providescoverage for an injury.

In Commercial Union Insurance Co. v. Mauldin, V an insurancecompany sought a declaration against the estate of a murder victimthat the homeowner's insurance policy did not cover liability arising

§ 153A-435 (1991).120. See N.C. GEN. STAT. § 160A-485(a).121. See &L122. Id.123. See id.124. Id. § 160A-485(c).125. 1&126. See id. § 160A-485; see also Jones v. Kearns, 120 N.C. App. 301, 303, 462 S.E.2d

245, 246 (1995) (holding the City of Winston-Salem not liable for damages less than$250,000 when the City's insurance policy covered only damages exceeding $250,000);Combs v. Town of Belhaven, 106 N.C. App. 71, 73-74, 415 S.E.2d 91, 92-93 (1992)(holding a town not liable because it had no insurance coverage for the acts of employeesdamaging plaintiff's real and personal property while removing allegedly "junked"vehicles from plaintiff's premises); Wiggins v. City of Monroe, 73 N.C. App. 44,49-52,326S.E.2d 39, 43-44 (1985) (holding a city liable because it was indemnified by its insurancepolicy for damages to plaintiffs house as occasioned by an order by the city's chiefbuilding inspector to demolish it).

127. 62 N.C. App. 461,303 S.E.2d 214 (1983).

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out of the shooting of the decedent by the insured.1 2 The insured'swife and the decedent were in a vehicle, and the insured shot a pistolinto the car with the intent to kill his wife but without a specific intentto kill the decedent.129 The homeowner's policy did not apply "'tobodily injury or property damage which is either expected orintended from the standpoint of the insured.' ,1

In determining whether the insured's act fell within theexclusion, the North Carolina Court of Appeals asserted that therewas little ambiguity in the contractual language: "The sentenceobviously means that the policy is excluding from coverage bodilyinjury caused by the insured's intentional acts, determining whetherthe act is intentional from the insured's point of view.... Despite theinsured's stipulation that he intended to kill his wife and not thedecedent, the court held that the insured was not covered by thepolicy because he pled guilty to second degree murder 2 Noting thatsecond degree murder will always consist of a general intent tocommit the act, but not necessarily the specific intent to achieve apurpose or desired result,13 the court held that the insured'sadmission of general intent, by pleading guilty to second degreemurder, excluded him from coverage under the insurance policy."M

The North Carolina Supreme Court interpreted a similarprovision in North Carolina Farm Bureau Mutual Insurance Co. v.Stox. 35 In Stox, the insurance company sought a declaratoryjudgment regarding whether an incident involving one of itspolicyholders was covered by the policyholder's homeowner'sinsurance policy. 3' The policy excluded medical payments to othersas a result of "'bodily injury or property damage'" that "'isexpected or intended by the insured.' ,,137 The insured, an employeeof a shoe store, pushed Stox, one of his co-employees at work, and

128. See id. at 461,303 S.E.2d at 215.129. See idL The insured later pled guilty to assault with a deadly weapon with intent

to kill his wife and to second degree murder. See id. at 462, 303 S.E.2d at 216.130. Id. at 462,303 S.E.2d at 215 (quoting the insurance policy).131. Id. at 463,303 S.E.2d at 216.132. See id. at 464,303 S.E.2d at 216.133. See id. at 464, 303 S.E.2d at 217 (citing State v. Wilkerson, 295 N.C. 559, 580-81,

247 S.E.2d 905, 917 (1978)).134. See id. The court briefly noted that the insured should have expected the

likelihood of one of the bullets hitting the victim. See id.135. 330 N.C. 697,412 S.E.2d 318 (1992).136. See id. at 699,412 S.E.2d at 320.137. Itt at 700,412 S.E.2d at 321 (quoting the insurance policy).

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told her to "'get away from here.' "" Stox fell to the floor andseverely fractured her right arm.139 At trial, Stox testified that shecould have prevented the fall if she had expected the push,'" and theinsured testified that "he did not intend to knock Stox to the floor orcause her any injury. 14' Based on the trial court's findings of fact, thesupreme court classified the injury as "'the unintended result of anintentional act.' ,,42 Although the North Carolina Court of Appealshad relied on Mauldin14 in holding that the policy excluded Stox'sinjury,'44 the supreme court held that the resulting injury, in additionto a volitional act, must be intended in order for the exclusion toapply.'45 The supreme court explained that the insured's push of Stoxwas not at a level that required an inference of an intent to inflict aninjury." The court also stated that the insurer "must prove that theinjury itself was expected or intended" and that "[m]erely showingthe act was intentional will not suffice" to avoid coverage based on anexclusion in an insurance policy pertaining to expected or intendedinjuries."4 Thus, the court held that the injury to Stox was covered bythe homeowner's insurance policy.'"

Although the 1991 case of Woodson v. Rowland'.. involvedworkers' compensation rather than liability insurance, its holding asto when an injury is "intentional"'" had tremendous impact on future

13& Id. at 699-700, 412 S.E.2d at 320. Stox was apparently talking to a customer'smother while the insured was assisting the customer. See id. at 699,412 S.E.2d at 320.

139. See id. at 700, 412 S.E.2d at 320.140. See id.141. Id.142. Id. at 703, 412 S.E.2d at 322 (quoting the trial court's findings of fact).143. See supra notes 127-34 and accompanying text (discussing Mauldin).144. See Stox, 330 N.C. at 703, 412 S.E.2d at 322.145. See U. at 703-04,412 S.E.2d at 322. The supreme court distinguished Mauldin on

the basis that the insured in that case "obviously knew it was probable that he wouldinjure [the decedent] when he fired four or five shots into her moving car." Id. at 704,412S.E.2d at 322. This knowledge of probability effectively rendered the injury intentional.See 1.

146. See id& at 706, 412 S.E.2d at 324.147. Id.148. See i. at 711,412 S.E.2d at 327.149. 329 N.C. 330,407 S.E.2d 222 (1991).150. See id. at 340-41, 407 S.E.2d at 228. Workers' compensation is a statutory strict

liability scheme that provides compensation to employees for "injur[ies] by accidentarising out of and in the course of the employment." N.C. GEN. STAT. § 97-2(6) (Supp.1996). For a discussion of the intentional injury exception to the Workers' CompensationAct in North Carolina, see generally Melissa F. Ross, Comment, Ripples in TreacherousWaters: A Consideration of the Effects of North Carolina's Intentional Tort Exception toWorkers' Compensation, 31 WAKE FOREST L. REV. 513 (1996).

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cases. In Woodson, an employee of a subcontractor hired to dig atrench for a sewer line was killed when the walls of the trenchcollapsed." Woodson, the administrator of the decedent's estate,brought a wrongful death action arising from the decedent's work-related death." Because the death was work-related, Woodson alsohad a workers' compensation claim."3 In most cases, workers'compensation is the exclusive remedy available to injured employees,so the defendant-employer moved for summary judgment." Indetermining whether the motion should be granted, the NorthCarolina Supreme Court stated that if the employer could show thatdeath was accidental, the defendants' motions for summary judgmentshould be allowed because the death would fall within the exclusivecoverage of the Workers' Compensation Act, and Woodson wouldhave no other remedies against the decedent's employer or co-worker.' 5 However, if the death was proven to be "the result of anintentional tort committed by his employer,1 56 then the motion forsummary judgment should be denied." Though Woodson could notprove that the employer intended to injure or kill the decedent, thecourt, adopting a new standard for the exclusivity provision, statedthat Woodson needed to show only that the employer engaged inconduct knowing that it was "substantially certain" to cause death orserious injury.'8 The court held:

[W]hen an employer intentionally engages in misconductknowing it is substantially certain to cause serious injury ordeath to employees and an employee is injured or killed bythat misconduct, that employee, or the personalrepresentative of the estate in case of death, may pursue a

151. See Woodson, 329 N.C. at 334-36, 407 S.E.2d at 224-26. The court stated that theevidence was such that "a reasonable juror could determine that upon placing a man inthis trench serious injury or death as a result of a cave-in was a substantial certaintyrather than an unforeseeable event, mere possibility, or even substantial probability." Id.at 345, 407 S.E.2d at 231.

152. See iL at 334,407 S.E.2d at 224.153. See id. at 336, 407 S.E.2d at 226; see also N.C. GEN. STAT. § 97-2 (relating to the

basis of recovery under the Workers' Compensation Act).154. See Woodson, 329 N.C. at 337,407 S.E.2d at 226.155. See id.156. Id.157. See id.158. See id. at 340-41, 407 S.E.2d at 228. Only a few states have a rule similar to the

"substantial certainty" standard adopted by North Carolina in Woodson. See DarinCalbreath Davidson, Comment, Expansion of the "Deliberate Intention" Exception toWashington's Workers' Compensation Exclusivity: Following Birklid v. Boeing Co., WhenDoes an Employer Intend Employee Injury?, 32 GONZ. L. REv. 225, 233 (1996); Ross,supra note 150, at 521.

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civil action against the employer. Such misconduct istantamount to an intentional tort, and civil actions basedthereon are not barred by the exclusivity provisions of theAct. Because ... the injury or death caused by suchmisconduct is nonetheless the result of an accident underthe Act, workers' compensation claims may also be pursued.There may, however, only be one recovery.159

Thus, for a plaintiff to circumvent the exclusivity provisions of theWorkers' Compensation Act, she needs to show that the employerengaged in conduct knowing that it was substantially certain to causeserious injury or death."64 In addition, such conduct can still beclassified as an accident for purposes of the Workers' CompensationAct, leaving the choice of remedy to the plaintiff.1'

The North Carolina Supreme Court reaffirmed and clarified itsWoodson position on intentional acts in Pendergrass v. Card Care,Inc.12 In Pendergrass, an employee was injured when his arm wascaught in a machine he was operating." Among other things, theemployee attempted to assert a claim under Woodson, so he wouldnot be limited by the exclusive remedy provided in the Workers'Compensation Act.1" In rejecting the employee's claim against hisemployer, the court stated the general rule from Woodson that allowsan injured employee to bring a tort claim against his employer if theemployee's injury was the result of intentional conduct by theemployer "which the employer knew was substantially certain tocause an injury ... [and was] so egregious as to be tantamount to anintentional tort."'' The court also stated that the level of conductrequired for a Woodson claim involves "a higher degree ofnegligence than willful, wanton and reckless negligence."'" Because

159. Woodson, 329 N.C. at 340-41,407 S.E.2d at 228.160. See id.161. See A162. 333 N.C. 233, 424 S.E.2d 391 (1993).163. See id. at 236, 424 S.E.2d at 393.164. See id, at 239, 424 S.E.2d at 395. The court had previously ruled, on a separate

claim in the same action, that the "negligence alleged did not rise to the level of willful,wanton, and reckless." Id at 240,424 S.E.2d at 395. The "willful, wanton, and reckless"standard is used when determining if the exclusivity provision of the Workers'Compensation Act applies to claims against co-employees. See Pleasant v. Johnson, 312N.C. 710,717-18,325 S.E.2d 244,249-50 (1985).

165. Pendergrass, 333 N.C. at 239, 424 S.E.2d at 395 (emphasis added) (discussingWoodson); see also Owens v. W.K. Deal Printing, Inc., 339 N.C. 603, 604, 453 S.E.2d 160,161 (1995) (quoting Pendergrass and stating that an action under Woodson does notrequire an intentional tort "in the true sense of that term"), rev'g per curiam 113 N.C.App. 324,438 S.E.2d 440 (1994).

166. Pendergrass, 333 N.C. at 239,424 S.E.2d at 395.

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the employee did not produce evidence to meet this standard, thecourt held that the employee could not sustain an action in tortagainst his employer.67

Woodson and Pendergrass provide that an injured employee mayavoid the exclusivity provisions of the Workers' Compensation Actand may bring an action in tort against an employer if he can provethat the injury was caused by the employer's intentional conduct,which the employer knew was substantially certain to cause death orserious injury to the employee.6 In the context of insurance policiesthat exclude coverage for "bodily injury or property damage which isexpected or intended by the insured," the North Carolina courts haverequired the insurer to prove that the injury itself was expected orintended.'69 If a city has purchased liability insurance, the policy maycontain a similar exclusion for injuries or damages that are expectedor intended by the city. Thus, in deciding whether a city with liabilityinsurance may raise governmental immunity as a defense, a court willhave to interpret the policy to determine if it covers the claimedinjury.

170

A city may waive its governmental immunity not only bypurchasing liability insurance, but also by participating in a localgovernment risk pool.' Under § 160A-485 of the North CarolinaGeneral Statutes, "participation in a [statutory] local government riskpool" is deemed the equivalent of a purchase of insurance, such thatthe city's immunity is waived.' Section 58-23-5 of the NorthCarolina General Statutes states that two or more local governmentsmay enter into risk pool agreements to protect against propertylosses and liability claims." In addition, § 58-23-15(3) requires these

167. See U at 240,424 S.E.2d at 395.168. See supra text accompanying notes 159, 165 (stating respectively the holdings of

Woodson and Pendergrass).169. See supra notes 127-48 (discussing Commercial Union Insurance Co. v. Mauldin,

62 N.C. App. 461, 303 S.E.2d 214 (1983), and North Carolina Farm Bureau MutualInsurance Co. v. Stox, 330 N.C. 697,412 S.E.2d 318 (1992)).

170. See N.C. GEN. STAT. § 160A-485 (1994); supra note 119 (quoting § 160A-485).171. See N.C. GEN. STAT. § 160A-485. See generally Coffey, supra note 23 (discussing

risk pools under § 160A-485 and discussing other, non-statutory risk-managementprograms).

172. N.C. GEN. STAT. § 160A-485.173. See N.C. GEN. STAT. § 58-23-5 (1994). Section 58-23-5 states:

In addition to other authority granted pursuant to Chapters 153A and 160A ofthe General Statutes, two or more local governments may enter into contracts oragreements pursuant to this Article for the joint purchasing of insurance or topool retention of their risks for property losses and liability claims and toprovide for the payment of such losses of or claims made against any member of

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agreements to provide that the pool will pay all claims for which eachmember incurs liability, subject to certain limited exceptions." Theinclusion of local government risk pools as a means of waivinggovernmental immunity occurred when the General Assemblyamended § 160A-485 in 1986."75 Although the amendment has beenin force for over a decade, few cases have involved the risk poolprong of the governmental immunity statute. 76

The North Carolina Supreme Court has interpreted this statuteonly once, in Blackwelder v. City of Winston-Salem." Blackwelderfiled a personal injury action against Winston-Salem, alleging thatone of its employees was negligent in operating a leaf collection truckand that his negligence proximately caused Blackwelder's injuries. 78

Winston-Salem raised governmental immunity as an affirmativedefense and moved for partial summary judgment.19 Blackwelderalso moved for partial summary judgment, asking the court to barWinston-Salem's governmental immunity defense.' Winston-Salemhad liability insurance to cover claims in excess of $1,000,000 and hadorganized a corporation, Risk Acceptance Management Corporation

the pool on a cooperative or contract basis with one another, or may enter into atrust agreement to carry out the provisions of this Article.... Such localgovernments shall give the Commissioner [of Insurance of North Carolina] 30days' advance written notification, in a form prescribed by the Commissioner,that they intend to organize and operate risk pools pursuant to this article.

ld.174. See ad § 58-23-15. Section 58-23-15 states:

A contract or agreement made pursuant to this Article must contain provisions:

(3) Requiring the pool to pay all claims for which each member incursliability during each member's period of membership, except where amember has individually retained the risk, where the risk is not covered,and except for amount of claims above the coverage provided by the pool.

Id.175. See Act of July 16, 1986, ch. 1027, 1986 N.C. Sess. Laws 635 (codified as amended

N.C. GEN. STAT. § 160A-485). One commentator has noted that "[t]he rationaleunderlying this amendment is sound: once local government funds are pooled, the thirdparty administrator of the pool acts as the insurer, paying the claims from a centralizedfund." Coffey, supra note 23, at 731.

176. See Blackwelder v. City of Winston-Salem, 332 N.C. 319, 420 S.E.2d 432 (1992)(discussing local government risk pools under the North Carolina General Statutes);Pharr v. Worley, 125 N.C. App. 136, 479 S.E.2d 32 (1997) (same); Hallman v. Charlotte-Mecklenburg Bd. of Educ., 124 N.C. App. 435, 477 S.E.2d 179 (1996) (same); Cross v.Residential Support Servs., Inc., 123 N.C. App. 616,473 S.E.2d 676 (1996) (same).

177. 332 N.C. 319,420 S.E.2d 432 (1992).178. See id. at 320,420 S.E.2d at 433.179. See id.180. See id.

288 [Vol. 76


("RAMCO"), to handle claims of $1,000,000 or less.' One issuebefore the court was whether Winston-Salem's organization ofRAMCO constituted a statutory local government risk pool, therebywaiving its governmental immunity." The court held that Winston-Salem had not formed a localgovernment risk pool because, underthe statute, two or more governments are needed to form a riskpool."

A second issue before the Blackwelder court was whetherWinston-Salem effectively had purchased liability insurance byforming and operating RAMCO.'" The court first examined thestatutory definition of insurance contract as an agreement by whichthe insurer pays money to the insured when something in which theinsurer has an interest is destroyed, lost, or injured." The courtstated that Winston-Salem had not entered into an insurance contractwith RAMCO because "RAMCO has not agreed to pay any moneyor do any act as an indemnity to the City for loss or injury to theCity.""' Additionally, there was no apparent shifting of risk betweenthe insured and the insurer.m Therefore, the court held thatWinston-Salem had not waived its governmental immunity by thepurchase of liability insurance.'

Four years later, in Wall v. City of Raleigh,"9 the North Carolina

181. See id. at 320, 420 S.E.2d at 434. In addition to the $1,000,000 limit underRAMCO, the City also "agreed to pay to RAMCO $600,000 annually and to reimburseRAMCO for operating expenses, borrowed funds, and all other costs." Id. at 321, 420S.E.2d at 434.

182. See i at 321-22,420 S.E.2d at 434.183. See id. at 322, 420 S.E.2d at 434; N.C. GEN. STAT. § 58-23-5 (1994); supra note

173 (quoting § 58-23-5). No other local government was sharing the risk with Winston-Salem. See Blackwelder, 332 N.C. at 322, 420 S.E.2d at 434.

184. See Blackwelder, 332 N.C. at 322, 420 S.E.2d at 434-35. If the court haddetermined that the formation of RAMCO constituted a purchase of liability insurance,Winston-Salem would be deemed to have waived its governmental immunity. See supranotes 119-25 and accompanying text (explaining that a government waives its immunity tothe extent that it purchased liability insurance that covers a claim).

185. See Blackwelder, 332 N.C. at 322, 420 S.E.2d at 435 (quoting N.C. GEN. STAT.§ 58-1-10). Section 58-1-10 states:

A contract of insurance is an agreement by which the insurer is bound to paymoney or its equivalent or to do some act of value to the insured upon, and as anindemnity or reimbursement for the destruction, loss, or injury of something inwhich the other party has an interest.

N.C. GEN. STAT. § 58-1-10.186. Blackwelder, 332 N.C. at 322, 420 S.E.2d at 435. Winston-Salem had agreed to

indemnify RAMCO for payments made on the city's behalf. See id187. See id. at 323,420 S.E.2d at 435.188. See hL189. 121 N.C. App. 351,465 S.E.2d 551 (1996).

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Court of Appeals briefly addressed § 160A-485 and local governmentrisk pools. Wall sued Raleigh, alleging that a debt collector forRaleigh had violated a statute regulating the conduct of suchcollectors." ° Raleigh was a member of a local government risk pool,Interlocal Risk Financing Fund of North Carolina. 9' The risk poolindemnified Raleigh for claims up to $2,000,000; however, the City ofRaleigh had to pay a $500,000 deductible on each claim.' Due to thedeductible, the court of appeals held that Raleigh had not waivedgovernmental immunity by participation in the local government riskpool for claims of $500,000 or less. 93

The previous discussion has focused on whether and to whatextent a city's participation in a risk-management program amountsto a waiver of governmental immunity. In some instances, the risk-management program, involving the use of public funds, may not be alocal government risk pool formed pursuant to the North CarolinaGeneral Statutes.'94 When a city is using public funds, the city'sauthority to use the funds in a certain manner is sometimeschallenged. 9 In Leete v. County of Warren,'96 the North CarolinaSupreme Court addressed such an issue. The plaintiffs in Leetesought an injunction to prevent the Warren County Board ofCommissioners from paying $5000 in severance pay to a county

190. See id at 352, 465 S.E.2d at 552; see also N.C. GEN. STAT. § 75-50 to -56 (1994)(prohibiting debt collectors from engaging in certain acts in the collection of debts).

191. See Wall, 121 N.C. App. at 353, 465 S.E.2d at 553.192. See id193. See id at 355, 465 S.E.2d at 554; cf. Jones v. Kearns, 120 N.C. App. 301, 308, 462

S.E.2d 245, 249 (1995) (holding that the City of Winston-Salem had not waived itsimmunity for claims up to $250,000 that were not covered by its liability insurance policy).

194. See, e.g., supra note 181 and accompanying text (discussing, as an example,RAMCO in Winston-Salem).

195. Clearly, a city may deposit funds in a local government risk pool in compliancewith § 160A-485 of the North Carolina General Statutes. See N.C. GEN. STAT. § 160A-485 (1994). However, if a city used public funds to form a local government risk pool thatdoes not meet statutory requirements, the city's authority to use the funds could bechallenged. See Bowers v. City of High Point, 339 N.C. 413, 417, 451 S.E.2d 284, 287(1994) ("It is a well-established principle that municipalities, as creatures of the state, canexercise only that power which the legislature has conferred upon them."); WataugaCounty Bd. of Educ. v. Town of Boone, 106 N.C. App. 270, 273, 416 S.E.2d 411, 413(1992) ("A municipality is a creature of the Legislature and it can only exercise (1) thepowers granted in express terms; (2) those necessarily or fairly implied in or incident tothe powers expressly granted; and (3) those essential to the accomplishment of thedeclared objects of the corporation .... "); cf. Brown v. Commissioners of RichmondCounty, 223 N.C. 744, 746, 28 S.E.2d 104, 106 (1943) ("[A] municipality cannot lawfullymake an appropriation of public moneys except to meet a legal and enforceable claim

196. 341 N.C. 116,462 S.E.2d 476 (1995).

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manager after his voluntary resignation.1" After the managerannounced his resignation at a board meeting, the Board authorizedthe severance pay.' In holding that the county could not authorizethe severance pay, the supreme court stated that the legislaturecannot "'authorize a municipal corporation to pay a gratuity to anindividual to adjust a claim which the municipality is under no legalobligation to pay.' ,,9 Furthermore, a municipality may notappropriate public funds "'except to meet a legal and enforceableclaim, and can make no payment upon a claim which exists merely byreason of some moral or equitable obligation which a generous, oreven a just, individual, dealing with his own moneys, might recognizeas worthy of some reward.' "" Thus, the court implied that in orderto distribute governmental funds, a local government must have alegal obligation to pay the receiver 2°" otherwise, the city would beacting ultra vires.

One of the major issues in Lyles was whether the DIRM formedby the City, Mecklenburg County, and the Charlotte-MecklenburgBoard of Education was a statutory local government risk pool.2The dissent concluded that the DIRM was a local government riskpool almost by default, stating that the agreement was either a localgovernment risk pool within the meaning of the statute, or paymentof funds from the DIRM to settle tort claims to which governmentalimmunity applies would be ultra vires?' By "presum[ing] that theCity acted pursuant to article 20 of chapter 160A of the NorthCarolina General Statutes as recited in the agreement establishingthe risk-management program,"' the dissent essentially presumedthat the City would not act in a manner that might be ultra vires.However, the City may have thought it had the authority to form anon-statutory risk-management program. 5

197. See id. at 117,462 S.E.2d at 477.198. See id. at 117-18,462 S.E.2d at 477.199. Id. at 120, 462 S.E.2d at 479 (quoting Brown, 223 N.C. at 746, 28 S.E.2d at 105-

06). The legislature may not authorize the payment of gifts or gratuities by a municipalityusing public funds. See i.d (citing Brown, 223 N.C. at 746, 28 S.E.2d at 105-06).

200. Id at 120-21,462 S.E.2d at 479 (quoting Brown, 223 N.C. at 746,28 S.E.2d at 105-06).

201. Cf. Bowers v. City of High Point, 339 N.C. 413, 417, 451 S.E.2d 284, 287 (1994)("It is a well established principle that municipalities, as creatures of the State, canexercise only that power which the legislature has conferred upon them.").

202. See Lyles, 344 N.C. at 679-80,477 S.E.2d at 153.203. See id. at 686,477 S.E.2d at 156 (Frye, J., dissenting).204. Id. (Frye, J., dissenting).205. For example, the supreme court implicitly has approved the City of Winston-

Salem's risk-management program even though it is not a statutory local government risk

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The dissent also made strong policy arguments for classifying theagreement as a local government risk pool. If the agreement was notdeemed a local government risk pool, then the dissent noted that amajor problem with such "'joint undertaking' contracts ... is that[they] give[] local governments the unbridled discretion to pay someclaims and to assert governmental immunity as to those claims that itdoes not wish to pay."m Under risk-management agreements thatare not statutory local government risk pools, the local governmentcould decide to settle some claims and not to settle others. However,if the local government decides not to pay the claim and is sued incourt, it may still raise governmental immunity as a defense. Thedissent disfavored such a prospect of local government officialsmaking arbitrary decisions about awards to injured parties that werenot reviewable by courts.' Therefore, based on these policyarguments and the notion that the City's actions would be ultra viresif not made under statutory authority, the dissent argued that theagreement was a local government risk pool.2°

One weakness in the dissent's argument is that it did not use theplain language of the statute.' The dissent maintained that theagreement was a constructive local government risk pool,210 but didnot use the statute to bolster its position. The dissent could haveexpounded on arguments made by Lyles that the agreement fellwithin the statutory definition of a local government risk pool. 211

Lyles argued that the essence of a local government risk pool is"providing for the payment of claims made against a member on acooperative or contract basis with one another."2 " Lyles felt that the

pool. See Blackwelder v. City of Winston-Salem, 332 N.C. 319, 321-22, 420 S.E.2d 432,434 (1992); see also supra notes 177-88 (discussing Blackwelder).

206. Lyles, 344 N.C. at 684,477 S.E.2d at 155 (Frye, J., dissenting).207. See id. (Frye, J., dissenting).20& See id. at 684-86,477 S.E.2d at 155-56 (Frye, J., dissenting).209. See id (Frye, J., dissenting). Even if an argument for a certain statutory

interpretation is not predicated on plain language, it should at least address the plainlanguage in order to make the argument more complete. One commentator has notedthat "[e]ven those [United States Supreme Court] opinions that are based onconsiderations other than plain language now routinely go through painfully detailedgrammatical analysis." Lawrence M. Solan, Learning our Limits: The Decline ofTextualism in Statutory Cases, 1997 WiS. L. REV. 235,243; see also, e.g., Reves v. Ernst &Young, 507 U.S. 170,177-79 (1993) (relying on close grammatical analysis to explicate themeaning of a statute).

210. See Lyles, 344 N.C. at 684,477 S.E.2d at 155 (Frye, J., dissenting).211. See N.C. GEN. STAT. § 58-23-5 (1994).212. Lyles, 344 N.C. at 679-80, 477 S.E.2d at 153. This language is nearly verbatim

from § 58-23-5's definition of a local government risk pool. See N.C. GEN. STAT. § 58-23-5; supra note 173 (quoting § 58-23-5).

[Vol. 76


City's agreement met this criterion, because in certain instances, theCity has the right to use money contributed by the other entities topay claims."' Lyles argued that "the entities had pooled retention oftheir risks for liability claims and provided for the payment of suchclaims made against any member of the pool on a cooperative orcontract basis."2 4 Under the agreement, the City was required toreimburse the other entities for money it borrowed to pay claims thatwere between $500,000 and $1,000,000.215 Lyles asserted that, despitethe reimbursement, the agreement was still on a cooperative orcontract basis.216

In countering this argument, the City relied on § 58-23-15 of theNorth Carolina General Statutes,2 17 which requires the risk poolagreement to "contain a provision that the pool pay all claims forwhich a member incurs liability., 21 8 The City argued, and themajority agreed, that the City's agreement did not meet thisrequirement because each member was required to reimburse therisk pool, with interest, for any funds paid on its behalf.29 Themajority essentially grounded its holding in the belief that there is nosharing of risk when an entity contributes money to a fund whereinanother member can use such money with an obligation to repay it.m

The majority presumably would classify the DIRM as a lender,similar to a bank, rather than a local government risk pool.

The majority also made two other statutory arguments tosupport its determination that the agreement did not constitute alocal government risk pool. First, the statute has certainrequirements for organizing such a risk pool.*' In creating the DIRMand setting up its procedures, the entities involved did not meet thesestatutory requirements.m Second, the majority noted that the

213. See Lyles, 344 N.C. at 679,477 S.E.2d at 152..214. Id at 679,477 S.E.2d at 152-53.215. See id. at 678,477 S.E.2d at 152; see also supra notes 31-35 and accompanying text

(elaborating on the terms of the agreement). In addition, the funds borrowed had to berepaid with interest. See Lyles, 344 N.C. at 678,477 S.E.2d at 152.

216. See Lyles, 344 N.C. at 679-80,477 S.E.2d at 152-53.217. See id. at 680,477 S.E.2d at 153.218. Id.; see also supra note 174 (quoting N.C. GEN. STAT. § 58-23-15 (1994)).219. See Lyles, 344 N.C. at 680,477 S.E.2d at 153.220. See id.221. See id. For example, the local government must give the Commissioner of

Insurance of North Carolina 30 days' notice before forming such a pool. See N.C. GEN.STAT. § 58-23-5. There are also requirements for adopting operational procedures andcreating boards of trustees. See id. § 58-23-10.

222. See Lyles, 344 N.C. at 680-81,477 S.E.2d at 153.

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Charlotte-Mecklenburg Board of Education did not meet thestatutory definition of "local government."' Unfortunately, themajority did not determine the effect this shortcoming would have ondeciding whether a local government risk pool existed when the otherstatutory requirements of creating a risk pool have been satisfied."'Nonetheless, the majority in Lyles used statutory text to support itsholding that the City's agreement was not a local government riskpool.'

However, the majority could have bolstered its decision byaddressing the policy concerns of the dissent. The rule regarding acity's authority to distribute funds, as stated in Leete, provides thebackground for one such policy concern.m In Leete, the NorthCarolina Supreme Court held that the Warren County Board ofCommissioners could not authorize a severance payment to a countymanager after his voluntary resignation." The court stated that amunicipality may not appropriate public funds "'except to meet alegal and enforceable claim.' "" If a claim is not legal andenforceable or if the legislature has not conferred the power to spendthe funds in a particular manner upon a municipality,=m then amunicipality may not have authority to appropriate the funds.21

Neither party raised the issue of whether the City of Charlotte'sparticipation in the risk-management program was ultra vires. 2

2

223. See id. at 680, 477 S.E.2d at 153. A" 'local government' means any county, city,or housing authority located in [North Carolina]." N.C. GEN. STAT. § 58-23-1.

224. See Lyles, 344 N.C. at 680, 477 S.E.2d at 153. "A local board of education isimmune from suit and may not be liable in a tort action unless the Board has duly waivedits governmental immunity." Hallman v. Charlotte-Mecklenburg Bd. of Educ., 124 N.C.App. 435, 437, 477 S.E.2d 179, 180 (1996) (citing Fields v. Durham City Bd. of Educ., 251N.C. 699, 700-01, 111 S.E.2d 910, 911 (1960); Overcash v. Statesville City Bd. of Educ., 83N.C. App. 21, 24-25, 348 S.E.2d 524, 527 (1986)). A board of education may waive itsimmunity only by purchasing liability insurance. See N.C. GEN. STAT. § 115C-42 (1994).Section 115C-42 "contains no authorization, such as that contained in [N.C. GEN. STAT.§ 160A-485], for waiver of immunity by participation in a risk pool." Hallnan, 124 N.C.App. at 438,477 S.E.2d at 181.

225. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.226. Leete v. County of Warren, 341 N.C. 116,462 S.E.2d 476 (1995).227. See supra notes 196-201 and accompanying text (discussing Leele).228. See Leete, 341 N.C. at 123,462 S.E.2d at 480.229. Id. at 120,462 S.E.2d at 479 (quoting Brown v. Board of Comm'rs, 223 N.C. 744,

746,28 S.E.2d 104, 106 (1943)).230. See Bowers v. City of High Point, 339 N.C. 413, 417, 451 S.E.2d 284, 287 (1994)

("It is a well-established principle that municipalities, as creatures of the State, canexercise only that power which the legislature has conferred upon them.").

231. See id.232. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.

[Vol. 76


Therefore, the majority did not address the issue directly 33 Thedissent, however, was concerned about the City's payment of funds tosettle tort claims to which governmental immunity might otherwiseapply.' Unless the City had waived its governmental immunity byparticipating in a local government risk pool, the dissent argued thatthe payment of funds to settle possible tort claims would be ultravires 35

However, while the City's use of funds may be ultra vires insome situations,. the City could use the funds in ways other thansettling claims to which governmental immunity might apply. Forexample, a city may not claim governmental immunity when it isacting for proprietary reasons with its own benefits at stake.237 In thissituation, when a city is clearly not immune, such a city may want tonegotiate a settlement of the claim. A city also could use the funds topay judgments resulting from lawsuits because that city is under alegal obligation to pay.' Therefore, a city's use of the risk-management fund is not necessarily ultra vires in all situations.

The majority addressed the ultra vires issue only to the extentnecessary to respond to the dissent."i In its brief discussion, themajority noted that the legislature provided for the waiver ofsovereign immunity by participation in a local government risk pooland provided specific requirements to establish such a risk pool. °

The majority "believe[d] it would be a mistake to hold that a localgovernment may ignore these statutory requirements and create a

233. See id.234. See id. at 686,477 S.E.2d at 156 (Frye, J., dissenting).235. See id- (Frye, J., dissenting). The dissent asserted that the City must have

intended to form a local government risk pool pursuant to statute, such that its actionswere not ultra vires. See i. (Frye, J., dissenting).

236. The North Carolina courts have not addressed a case in which a plaintiff arguedthat a non-statutory risk-management program was ultra vires. A search for such a caseyielded none.

237. See Moffitt v. City of Asheville, 103 N.C. 191,203, 9 S.E. 695, 697 (1889) (statingthat when a city acts in a "ministerial or corporate character in the management ofproperty for [its] own benefit, or in the exercise of powers, assumed voluntarily for [its]own advantage," the city is "impliedly liable for damage caused by the negligence ofofficers or agents subject to [its] control"); Harper, supra note 18, at 47-49 (discussingMoffitt and noting that North Carolina courts continue to deny sovereign immunity toproprietary functions); Gray, supra note 100, at 47-50 (discussing the distinction betweengovernmental and proprietary functions and the rule that proprietary activities can resultin tort liability).

238. See Leete v. County of Warren, 341 N.C. 116, 120-21, 462 S.E.2d 476, 479 (1995);see also supra text accompanying note 200 (quoting the relevant portion of Leete).

239. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.240. See id.

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risk pool to its own liking.""24 The majority then held that there wasnot sufficient risk-sharing in the agreement for it to be considered arisk pool.242

Assuming the City was not participating in a local governmentrisk pool, the agreement might better be classified as "self-insurance." One authority has defined self-insurance as "'a plannedprogram of paying from a company's own funds for losses sustained,where it recognizes reasonably the potential losses that might beincurred, does all that it can to avoid or reduce this potential, andthen provides a means to process and pay for the lossesremaining.' ,,243 Although the DIRM might be classified as self-insurance, the North Carolina Supreme Court refused to characterizea similar program as such in Blackwelder.2

Nonetheless, strong arguments can be made that self-insuranceprograms should be a basis for waiver of governmental immunity.Agreements such as the ones in Blackwelder and Lyles are similar totraditional insurance policies and both provide adequate funds forcompensation of victims.245 The North Carolina legislature alreadyhas sought to protect victims by abolishing governmental immunitywhen a city purchases liability insurance to cover a claim.246 As "[t]heideal underlying risk-management is the efficient payment of claims,"if a local government has sufficient funds in a risk-managementprogram not amounting to a local government risk pool, "it is theduty of the local government to protect the interest of the individualpursuant to section 160A-485."' 7

The other major issue in Lyles was whether the City had waivedits governmental immunity by purchasing liability insurance.24 Inarguing that the City had waived its governmental immunity, Lyleswas in a precarious situation. Because her husband's death occurred

241. Id.242. See id. at 680, 477 S.E.2d at 153. Another major factor was the required

reimbursement of the fund for any claims paid on a party's behalf. See id.243. Thomas W. Rynard, The Local Government as Insured or Insurer: Some New

Risk Management Alternatives, 20 URB. LAW. 103, 111 (1988) (quoting Robert L. Young,Self-Insurance, in RISK MANAGEMENT TODAY: A How-To GUIDE FOR LOCALGOVERNMENT 59,60 (Natalie Wasserman & Dean G. Phelus eds., 1985)).

244. See Blackwelder v. City of Winston-Salem, 332 N.C. 319,322,420 S.E.2d 432,434(1992); see also supra notes 184-88 and accompanying text (discussing the court's holdingin Blackwelder).

245. See Coffey, supra note 23, at 732.246. See N.C. GEN. STAT. § 160A-485 (1994); Coffey, supra note 23, at 732.247. Coffey, supra note 23, at 732.248. See Lyles, 344 N.C. at 681,477 S.E.2d at 153.

296 [Vol. 76


while in the course and scope of employment, the Workers'Compensation Act applied.49 To bring a suit in tort against the City,Lyles had to avoid the exclusive remedy provision of workers'compensation." Under Woodson v. Rowland ' ' a person may bring asuit in tort against an employer if she can show the "employerintentionally engage[d] in misconduct knowing it [was] substantiallycertain to cause serious injury or death to employees and anemployee is injured or killed by that misconduct." 2 In order toavoid having her suit dismissed on grounds of governmentalimmunity, Lyles also had to prove that the death of her husband wascovered by the City's liability insurance policy.2 The City's policycovered accidents and "exclude[d] coverage for 'bodily injuryintentionally caused or aggravated by or at the discretion of theInsured.' "2 4 Thus, Lyles had to prove that the employer engaged inintentional misconduct knowing it was substantially certain to causeserious injury or deathV5 and that the bodily injury was notintentionally caused or aggravated by the employer. 6

The majority and the dissent disagreed as to whether Lyles couldbring a Woodson claim that would be covered by the City's insurancepolicy. In holding that Lyles's claim was excluded by the insurancepolicy,' the majority relied on Stox,' 8 which interpreted a similarexclusion in an insurance policy.'9 The majority stated that under

249. See id. at 681, 477 S.E.2d at 154; see also N.C. GEN. STAT. § 97-2 (1994) (statingthe general requirements for recovery under the Workers' Compensation Act).

250. See Lyles, 344 N.C. at 681, 477 S.E.2d at 154. The Workers' Compensation Actstates that if the employee and the employer meet the requirements of the Act, "then therights and remedies herein granted to the employee [and] his dependents.., shall excludeall other rights and remedies of the employee [and] his dependents ... as against theemployer at common law or otherwise on account of such injury or death." N.C. GEN.STAT. § 97-10.1.

251. 329 N.C. 330,407 S.E.2d 222 (1991).252. Id. at 340-41, 407 S.E.2d at 228; see supra notes 149-61 and accompanying text

(discussing Woodson and the application of its standard in other cases).253. See Lyles, 344 N.C. at 681,477 S.E.2d at 153-54.254. Id. at 681,477 S.E.2d at 153 (quoting the insurance policy).255. This proof was necessary to avoid the exclusive remedy provisions of the

Workers' Compensation Act. See id. at 681,477 S.E.2d at 154.256. Lyles needed to prove this in order for the liability policy to cover her husband's

death, such that the City could not plead governmental immunity. See id. at 681, 477S.E.2d at 153-54.

257. See id. at 682,477 S.E.2d at 154.258. North Carolina Farm Bureau Mut. Ins. Co. v. Stox, 330 N.C. 697, 412 S.E.2d 318

(1992); see supra note 135-48 and accompanying text (discussing Stox).259. Compare Lyles, 344 N.C. at 678, 477 S.E.2d at 152 (excluding coverage in policy

for "'bodily injury intentionally caused or aggravated by or at the direction of theInsured'" (quoting the insurance policy)), with Stox, 330 N.C. at 700, 412 S.E.2d at 321

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Stox, "an intentional act is an accident within the meaning of ahomeowner's insurance policy if the injury incurred was not intendedor substantially certain to be the result of the intentional act."'' Ifthis is the correct interpretation of Stox, then the majority's reasoningis consistent. However, the dissent disagreed with thischaracterization of Stox."1

The dissent asserted that Stox would allow most Woodson claimsto be covered by the City's liability insurance policy.z2 The Stoxcourt characterized the injury in that case as "'the unintended resultof an intentional act' "6 and held that the injury was covered by thehomeowner's insurance policy."' Specifically, the Stox courtconcluded that "it is the resulting injury, not merely the volitional act,which must be intended for [the] exclusion to apply." ' The dissentcharacterized the injury in Lyles as an unintended result of anintentional act and thus argued that the exclusion in the insurancepolicy did not apply.26

Even if the policy included Lyles's claim, the dissent still neededto explain how Lyles could avoid the exclusive remedy provision ofthe Workers' Compensation Act. To address this problem, thedissent recalled the court's application of its Woodson holding267 toPendergrass v. Card Care, Inc.8 The Pendergrass court stated that aplaintiff can avoid the exclusive remedy provision of the Workers'Compensation Act if the employer's conduct was "so egregious as tobe tantamount to an intentional tort." 9 The dissent stated there was

(excluding coverage in policy for" 'bodily injury or property damage' "that" 'is expectedor intended by the insured' " (quoting the insurance policy)).

260. Lyles, 344 N.C. at 682, 477 S.E.2d at 154 (citing Stox, 330 N.C. at 709, 412 S.E.2dat 325).

261. See idA at 686, 477 S.E.2d at 157 (Frye, J., dissenting).262. See id. at 687,477 S.E.2d at 157 (Frye, J., dissenting).263. Stox, 330 N.C. at 703, 412 S.E.2d at 322 (quoting the findings of the trial court).264. See id. at 711,412 S.E.2d at 327.265. Id. at 703-04,412 S.E.2d at 322.266. See Lyles, 344 N.C. at 688, 477 S.E.2d at 157 (Frye, J., dissenting). The dissent

noted that Lyles did not argue or believe that the City intended to injure or to kill herhusband. See id. (Frye, J., dissenting). The dissent bolstered its interpretation of theholding in Stox by noting that Chief Justice Mitchell had written the court's unanimousopinion in that case. See id. at 687, 477 S.E.2d at 157 (Frye, J., dissenting). Chief JusticeMitchell joined the dissenting opinion in Lyles. See id. at 689, 477 S.E.2d at 158 (Frye, J.,dissenting). Because Chief Justice Mitchell had written the opinion in Stox, the fact thathe agreed with the dissent's interpretation and application of Stox in Lyles adds strengthto the dissent's position.

267. See supra notes 149-61 and accompanying text (discussing Woodson).268. 333 N.C. 233, 424 S.E.2d 391 (1993); see supra notes 162-67 and accompanying

text (discussing Pendergrass).269. Pendergrass, 333 N.C. at 239,424 S.E.2d at 395.

298 [Vol. 76


a minute difference between an intentional tort and "'conduct soegregious as to be tantamount to an intentional tort.' "' Thus, itconcluded, an employer may engage in misconduct knowing that suchmisconduct is substantially certain to cause serious injury or death; incontrast, such misconduct may not be sufficiently intentional to beexcluded from an insurance policy that does not cover "bodily injuryintentionally caused or aggravated by or at the discretion of theInsured."271

In other words, there is a distinction between engaging inmisconduct with the intent of causing serious injury or death andengaging in misconduct with knowledge that such misconduct issubstantially certain to cause serious injury or death. Essentially, theargument was that the use of the words "intentionally caused" in aninsurance policy should be construed narrowly. m According to thedissent, bodily injury intentionally caused would probably not includebodily injury substantially certain to be causedY Conduct that issubstantially certain to cause serious injury or death is sufficient toremove a claim from the exclusivity provisions of the Workers'Compensation Act. 4 Therefore, the dissent believed that a plaintiffcan bring a Woodson claim and still have coverage under a liabilityinsurance policy that excludes coverage for intentionally causedinjuries. ' The majority disagreed with this distinction and thus heldthat by making a Woodson claim, Lyles had removed her claim fromcoverage under the City's insurance policy 6

The dissent made a legitimate argument and identified a regionbetween intent and substantial certainty that probably exists.However, the distinction between "intentional" and "substantiallycertain" would be difficult to apply. Bodily injury that wasintentionally caused would include bodily injury that is knowingly orpurposely caused. It is unclear how substantial certainty may bedistinguished from knowledge or purpose in the context of injury.The majority made the correct assessment by implying that anydistinction between bodily injury intentionally caused and bodily

270. Lyles, 344 N.C. at 688, 477 S.E.2d at 158 (Frye, J., dissenting) (quotingPendergrass, 333 N.C. at 239,424 S.E.2d at 395).

271. Id. at 678,477 S.E.2d at 152 (quoting the City's insurance policy).272. See id. at 688,477 S.E.2d at 157 (Frye, J., dissenting).273. See id. at 688, 477 S.E.2d at 157-58 (Frye, J., dissenting).274. See Woodson v. Rowland, 329 N.C. 330,340-41,407 S.E.2d 222,228 (1991).275. See Lyles, 344 N.C. at 689,477 S.E.2d at 158 (Frye, J., dissenting).276. See id. at 682, 477 S.E.2d at 154.

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injury substantially certain to be caused is negligible.2'Although the City of Charlotte avoided liability in Lyles, a

question remains as to why a city would purchase liability insuranceor participate in a local government risk pool if it will result in awaiver of governmental immunity. First, there are some claims forwhich a government may not plead immunity.28 For example, a citymay not plead immunity from torts committed in the course ofperforming a proprietary function.2 Second, cities may purchaseinsurance to protect their employees and officials from liability fortortious performance of their official duties.= As one commentatorhas noted, "[t]he promotion of good will between the localgovernment employer and its employees is not only a virtue but anecessity in our increasingly litigious society."s' Third, a city maypurchase insurance to cover its governmental actions, despite waivingimmunity, simply to protect the public from harm.' After payingtaxes to a local government, it may seem inequitable for a taxpayernot to be compensated for an injury resulting from the actions oromissions of that same local government. Finally, a city may wish toparticipate in a risk-management program to protect "governmentassets and taxpayer funds from total consumption. '"' Thus,legitimate reasons exist for a municipality to participate in a local

277. See id. at 681-82,477 S.E.2d at 153-54.278. See Harper, supra note 18, at 72.279. See id In Moffitt v. City of Asheville, 103 N.C. 191, 9 S.E. 695 (1889), the court

held that cities are liable for damage caused by the negligence of their officers or agentswhen they are "acting... in their ministerial or corporate character in the management ofproperty for their own benefit, or in the exercise of powers, assumed voluntarily for theirown advantage." Id at 203, 9 S.E. at 697; see also Steelman v. City of New Bern, 279 N.C.589, 592-93, 184 S.E.2d 239, 241-42 (1971) (reaffirming the position of the court taken inMoffitt). There are a number of examples of proprietary functions in which a city mayengage. See Raleigh-Durham Airport Auth. v. Stewart, 278 N.C. 227,231, 179 S.E.2d 424,426 (1971) (holding that a municipal corporation, owning and operating a public airport,was acting in a proprietary capacity); Bowling v. City of Oxford, 267 N.C. 552, 557, 148S.E.2d 624, 628 (1966) ("When a municipal corporation operates a system of waterworksfor the sale by it of water for private consumption and use, it is acting in its proprietary orcorporate capacity."); Aaser v. City of Charlotte, 265 N.C. 494, 497, 144 S.E.2d 610, 613(1965) (holding that a city, operating "an arena for the holding of exhibitions and athleticevents owned ... to produce revenue and for the private advantage of the compactcommunity," was engaged in a proprietary function); Hare v. Butler, 99 N.C. App. 693,699, 394 S.E.2d 231, 235 (1990) ("Non-traditional governmental activities such as theoperation of a golf course or an airport are usually characterized as proprietaryfunctions.").

280. See Harper, supra note 18, at 72.281. Id.282 See i.283. Coffey, supra note 23, at 716.

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government risk pool or to purchase liability insurance. Thesereasons overlap to some extent with arguments to abolishgovernmental immunity.

Three primary arguments exist for abolishing governmentalimmunity. First, cities and counties may purchase liability insuranceagainst tort claims,' and "[t]he insurance thus purchased establishesdefinite limits of liability of the governmental entity and bringspredictability to the area of tort damage awards." Second,application of the doctrine seems harsh at times. 6 The NorthCarolina Supreme Court has recognized this harshness and has beenreluctant to expand its application.m Finally, the theory of"enterprise liability" supports abolition of governmental immunity,'because the theory posits that "the costs of governmental torts arecosts of the enterprise of government that should be borne by thepublic through insurance premiums." z Instead of forcing theunfortunate victim to pay the costs of the injuries caused by thegovernment, the public should pay those costs because the publicbenefits from the government activity.2'

284. See Gray, supra note 100, at 55. Cities and counties are authorized by statute topurchase insurance. See N.C. GEN. STAT. § 160A-485 (1994) (cities); id. § 153A-435(1994) (counties).

285. Gray, supra note 100, at 55.286. See id.; see also Lindler v. Duplin Bd. of Educ., 108 N.C. App. 757, 761, 425

S.E.2d 465, 468 (1993) (denying recovery based on governmental immunity to a teacherwho fell and fractured one of her lumbar vertebrae on school premises during afundraising function for an honorary teachers' sorority); Plemmons v. City of Gastonia, 62N.C. App. 470, 472-73, 302 S.E.2d 905, 906 (1983) (denying recovery based ongovernmental immunity to a minor who fell off gymnasium bleachers and suffered seriousand permanent brain damage).

287. See Gray, supra note 100, at 55; see also Meares v. Commissioners of Wilmington,31 N.C. (9 Ired.) 61, 70 (1848) (per curiam) (stating that sovereign immunity was"somewhat harsh in its mildest sense"); Plemmons, 62 N.C. App. at 472,302 S.E.2d at 906(holding the board of education not liable based on immunity "[w]hile not unmindful thatthis interpretation is likely to produce harsh results in many cases"); Casey v. WakeCounty, 45 N.C. App. 522, 523, 263 S.E.2d 360, 361 (1980) ("It is, however, the judicialtrend in this State not to expand but resist the application of the government immunitydoctrine.") (note that the Southeastern Reporter contains "restrict" in place of "resist,"and "governmental" in place of "government").

288. See Gray, supra note 100, at 55.289. Id.290. See id. at 56 (citing Smith v. State, 289 N.C. 303, 313,222 S.E.2d 412,419 (1976)).

The North Carolina Supreme Court discussed the "enterprise liability" theory in Smith:"[S]ince the public purpose involves injury-producing activity, injuries should beviewed as an activity cost which must be met in the furtherance of publicenterprise; ... it is better to distribute the cost of government caused injuriesamong the beneficiaries of government than entirely on the hapless victims;although the government does not profit from its activities, the taxpayers do, so

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Naturally, there also are several compelling reasons to retaingovernmental immunity. First, the doctrine should be retained forfinancial reasons.29 A government repeatedly forced to pay claimsagainst it could go bankrupt if it does not have adequate funds to paydamages.29 As one commentator noted, "[i]f ... revenues raised bytaxation are diverted to the payment of damage claims caused byemployees' torts, the budgetary process would be disrupted andimportant governmental functions would be impaired.''2

3 Separationof powers is a second argument for retention of governmentalimmunity,' because if courts heard tort suits involving thediscretionary acts of local governments, "judgments made by thelegislative branch would be subject to review by the judicialbranch." '295 Finally, local governments are unique because theyengage in activities that private entities would not ordinarilyundertake.26 If not protected by governmental immunity, localgovernments would be exposed to substantial risks from thesegovernmental activities.29

' Despite any strength in the arguments for

the taxpayers should bear the cost of governmental tort liability."Smith, 289 N.C. at 313, 222 S.E.2d at 419 (quoting COMMITTEE ON THE OFFICE OFATTORNEY GENERAL, NATIONAL Ass'N OF ATrORNEYS GENERAL, SOVEREIGNIMMUNITY: THE LIABILITY OF GOVERNMENT AND ITS OFFICIALS 17 (Jan. 1975)).

291. See Gray, supra note 100, at 53.292- See id.293. Id.; see also WILLIAM L. PROSSER, HANDBOOK OF THE LAW OF TORTS § 131, at

978 (4th ed. 1971) ("[C]ities cannot carry on their governments if money raised bytaxation for public use is diverted to making good the torts of employees.").

294. See Gray, supra note 100, at 54.295. Id. This type of judicial review of legislative decision-making is contrary to the

notion of separation of powers required by the constitution. See id. But see William R.Casto, James Iredell and the American Origins of Judicial Review, 27 CONN. L. REV. 329,329 (1995) ("Everyone agrees that the Supreme Court has a power of judicial review thatauthorizes the Court to pass upon the constitutionality of governmental action anddeclare it void."). See generally ALEXANDER M. BICKEL, THE LEAST DANGEROUSBRANCH 1-33 (2d ed. 1986) (discussing the establishment of and justifications for judicialreview).

296. See Sides v. Cabarrus Mem'l Hosp., Inc., 287 N.C. 14, 23, 213 S.E.2d 297, 303(1975) ("[I]t appears that all of the activities held to be governmental functions by thisCourt [sic] are those historically performed by the government, and which are notordinarily engaged in by private corporations."); Gray, supra note 100, at 54 ("Localgovernments undertake activities that private entities would never undertake."). See, e.g.,Hayes v. Billings, 240 N.C. 78, 81 S.E.2d 150 (1954) (involving a local governmenterecting and maintaining a jail); Hamilton v. Hamlet, 238 N.C. 741, 78 S.E.2d 770 (1953)(involving a local government installing and maintaining traffic signals).

297. See Gray, supra note 100, at 54. "Fire protection and prevention, lawenforcement, water and air pollution control, flood control, water and soil conservation,and public health functions are a few examples of activities essential to the public welfarethe performance of which would become extremely onerous if government were heldliable for all resulting harm." Comment, The Role of the Courts in Abolishing

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abolition of governmental immunity, the North Carolina courts willnot likely dispose of the doctrine without legislative support. TheNorth Carolina Supreme Court has clearly indicated that anyabolition of the doctrine of governmental immunity must come fromthe legislature.29

The North Carolina Court of Appeals recently has heard othercases involving waiver of governmental immunity in the context ofthe DIRM created by the City of Charlotte, Mecklenburg County,and the Charlotte-Mecklenburg Board of Education. Cross v.Residential Support Services, Inc.'" was decided before the NorthCarolina Supreme Court reversed the court of appeals' decision inLyles. In a suit brought against Mecklenburg County, the court ofappeals, relying on its decision in Lyles, 31 held that the "County'sparticipation in this risk-management program operates as a totalwaiver of governmental immunity." ' The North Carolina SupremeCourt, upon a petition for discretionary review, remanded Cross tothe court of appeals for reconsideration in light of Lyles.3 3

The court of appeals also has rejected arguments that theCharlotte-Mecklenburg Board of Education waived its governmentalimmunity by participating in the DIRM.3 In Hallman v. Charlotte-Mecklenburg Board of Education, 05 the court of appeals stated that"[a] local board of education is immune from suit and may not beliable in a tort action unless the Board has duly waived itsgovernmental immunity.... [A] board of education may waive suchimmunity by purchasing liability insurance.""' The court of appeals

Governmental Immunity, 1964 DUKE L.J. 888,893-94.298. See Blackwelder v. City of Winston-Salem, 332 N.C. 319, 324,420 S.E.2d 432,435

(1992) ("We feel that any change in th[e] doctrine [of governmental immunity] shouldcome from the General Assembly."); Steelman v. City of New Bern, 279 N.C. 589, 595,184 S.E.2d 239, 243 (1971) ("[W]e feel that any further modification or the repeal of thedoctrine of sovereign immunity should come from the General Assembly, not thisCourt.").

299. 123 N.C. App. 616,473 S.E.2d 676 (1996), remanded for reconsideration, 345 N.C.341,483 S.E.2d 164 (1997).

300. 120 N.C. App. 96, 461 S.E.2d 347 (1995), rev'd, 344 N.C. 676, 477 S.E.2d 150(1996).

301. Id.302. Cross, 123 N.C. App. at 622,473 S.E.2d at 680.303. See Cross v. Residential Support Servs., Inc., 345 N.C. 341,483 S.E.2d 164 (1997).304. See Pharr v. Worley, 125 N.C. App. 136, 138,479 S.E.2d 32,34 (1997); Hallman v.

Charlotte-Mecklenburg Bd. of Educ., 124 N.C. App. 435, 438-39, 477 S.E.2d 179, 181(1996).

305. 124 N.C. App. 435,477 S.E.2d 179 (1996).306. Id. at 437, 477 S.E.2d at 180 (citations omitted); see N.C. GEN. STAT. § 115C-42

(1994) (stating that a board of education may waive its immunity by securing liability

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relied on the supreme court's decision in Lyles to support the sameholding in Pharr v. Worley,m in which it "conclude[d] that the[Charlotte-Mecklenburg Board of Education] is not and could not be,a risk pool participant, and has not waived its immunity.""8 Thereasoning in Hallman and Pharr appears to be generally consistentwith the North Carolina Supreme Court's approach to immunity.3

As the supreme court has stated, North Carolina will retaingovernmental immunity until the legislature abolishes the doctrine. '

If the doctrine were abolished, local governments would be forced topurchase insurance or participate in a risk pool.31

1 The current statusof the doctrine, where immunity exists unless the local governmentpurchases liability insurance or participates in a local governmentrisk pool,312 is probably the best position. Local governments areimmune from tort liability unless they take specific actions to waivetheir immunity. Under this scheme, the local government has theoption to purchase insurance or participate in a risk pool. Thelegislature could resolve situations similar to Lyles andBlackwelder,3 13 in which the local governments entered non-statutoryrisk-management programs, by requiring local government risk-management programs to comply with statutory requirements. Afterall, the legislature has the ultimate authority to decide whether

insurance, and making no reference to participation in a local government risk pool).307. 125 N.C. App. 136,479 S.E.2d 32 (1997).308. id. at 138,479 S.E.2d at 34. The court stated: "[T]he Lyles Court held that '[t]he

Charlotte-Mecklenburg Board of Education could not join a risk pool pursuant to [§ 58-23-1 of the North Carolina General Statutes].'" Id. (quoting Lyles, 344 N.C. at 680, 477S.E.2d at 153); see N.C. GEN. STAT. § 58-23-1 (1994).

309. In Lyles, the North Carolina Supreme Court stated that only cities, counties, andhousing authorities could join a local government risk pool pursuant to Article 23,Chapter 58 of the North Carolina General Statutes. See Lyles, 344 N.C. at 680, 477S.E.2d at 153. In addition, the Lyles court held that the DIRM did not give rise to enoughrisk-sharing to create a local government risk pool. See id.

310. See supra note 298 (citing cases in which the court deferred to the legislature toabolish the doctrine).

311. See Comment, The Role of the Courts in Abolishing Governmental Immunity,supra note 297, at 898 (noting that the fear of disastrous effects on limited municipalfunds resulting from an abolition of governmental immunity "can be avoided throughcommercial insurance and other loss spreading techniques"). Even with this protection,the local government could be forced to pay damages that exceed any coverage that itmight have. Unlimited liability could lead to serious financial troubles for any localgovernment. In addition, the abolition of governmental immunity would serve as adisincentive for small communities to incorporate and provide services to its citizens atthe risk of being found liable for the actions of its employees and agents. Further, localgovernments would likely have to raise taxes in order to protect themselves from liability.

312. See N.C. GEN. STAT. § 160A-485 (1994); supra notes 119-25 and accompanyingtext (discussing § 160A-485).

313. See supra notes 177-88 and accompanying text (discussing Blackwelder).

304 [Vol. 76

1997] GOVERNMENTAL IMMUNITY 305

governmental immunity should be abolished or in whatcircumstances it may be waived.

J. JASON LINK

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